New data shows that the majority of Navient student loan borrowers who paid off federal student loans during the Covid-19 pandemic are “Under the water”.
Here’s what you need to know.
U.S. Department of Education released data federal student loan borrowers participating in an income-based repayment plan who voluntarily made at least one payment during the Covid-19 pandemic when federal student loan payments were suspended. Here’s what the data shows:
- 63% of student loan borrowers owe more than they originally borrowed;
- This means that these student loan borrowers not even paid off $ 1 of the original student loan balance;
- Of the undersea student loan borrowers, despite paying at least one student loan payment during the Covid-19 pandemic, nearly 90,000 are in debt more than 125% of the original student loan balance;
- This includes a dataset of 428,268 student loan borrowers, 2.4 million of whom are served by Navient, one of the nation’s largest student loan services;
- The total outstanding debt of these student loan borrowers is $ 27.6 billion; and
- During the Covid-19 pandemic, these student loan borrowers collectively paid off $ 600 million in student loans.
The US Department of Education provided this data through a Freedom of Information Act request from the Center for Responsible Lending and Student Loan Assistance. Federal student loan payments have been temporarily suspended since March 2020 due to Congress passing the Nursing Act stimulating package of $ 2.2 trillion. President Donald Trump has extended this student loan exemption twice until January 31, 2021. President Joe Biden has also renewed this student loan exemption twice, including through January 31, 2022.
What does this mean for your student loans
This data can be frustrating for many student loan borrowers. Even those who tried to pay off student loans during the Covid-19 pandemic still owe more than they originally borrowed. It is important to understand several important parameters of temporary student loan forgiveness in order to put the data in context.
Student loans have interest
This seems obvious, but as with any loan, the borrower will always owe more than the principal. This applies not only to student loans, but also to mortgages and personal loans. In particular, it is the compound effect – the interest rate – that leads to an increase in the student loan balance in the first place. However, being in debt over 125% of what you borrowed is not only frustrating but financially difficult for millions of student loan borrowers.
Student Loan Temporary Waiver Does Not Provide New Student Loan Interest
At the time of the cancellation of the temporary waiver of student loans, no new interest was charged on federal student loans. This effectively means that the interest rate on federal student loans was temporarily 0%. This does not mean that interest on an outdated student loan has disappeared. Most likely, no new interest has been accumulated since March 2020.
Student loan payments during abstinence pay interest first, then principal.
At the time of waiver of a temporary student loan, any voluntary federal student loan payments will first pay the existing interest on the student loan. The amount of interest on a student loan can vary widely depending on several factors, including, for example, the interest rate, the amount of the principal balance, and the age of the student loan. If you have $ 10,000 student loan interest and paid $ 5,000 in student loan payments during the Covid-19 pandemic, you will still be underwater with your student loan service. However, if you have current student loan interest of $ 5,000 and you contributed $ 10,000 towards student loan payments during the Covid-19 pandemic, you would pay off all of your student loan interest and pay off a portion of your principal balance. student loan.
Is it worth paying off student loans during the Covid-19 pandemic?
Student loan repayments during the Covid-19 pandemic, while optional, are a financial boon to student loan borrowers. Typically, federal student loan repayments pay interest and principal in equal installments over 10 years in accordance with the Standard Repayment Plan. During the student loan deferral, federal student loan payments are suspended. However, you can voluntarily pay off student loans to pay off your debts faster. Every dollar you deposit pays off your old interest balance first. Once you pay the existing interest, every dollar of the additional student loan payment will directly pay off your principal student loan balance. If you have extra funds, paying off student loans during the Covid-19 pandemic is a smart financial move. Why? This can help you cut down on your student loans significantly and pay off your debts faster.
Student Loan Cancellation: What Else Can Student Loan Borrowers Get
Cancellation of student loan is one of the elements that should not be forgotten with this student loan details. Although many student loan borrowers are “underwater”, they will not be in debt on their student loan balance if they meet certain requirements while participating in an income based repayment plan such as IBR, PAYE, REPAYE and ICR. With an income-driven repayment plan, you can get federal student loan student loan forgiveness after 20 years (student student loans) or 25 years (student loans for graduate students). This assumes that you make on-time student loan payments in full each month while you are a member of an income-driven repayment plan. This means that many student loan borrowers in financial difficulty will not owe the full balance of the student loan. In addition, your monthly student loan payment is based on your income, family size and state of residence, which can bring your monthly federal student loan payment down to $ 0. Until December 31, 2025, you will not be taxed on the amount of your federal student loans. canceled as part of an income-driven repayment plan.
Whether you decide to pay off your student loans during the Covid-19 pandemic or follow an alternative strategy, make sure you understand all the options. Here are some popular money saving strategies:
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